When the cash flow of the alternative with the lower initial investment is subtracted from that with the higher initial investment, a rate of return on the incremental cash flow that equals or exceeds the MARR means the lower-initial investment alternative is the more attractive. True or False?

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Business

Nicholas Carson

27 June, 04:09

When the cash flow of the alternative with the lower initial investment is subtracted from that with the higher initial investment, a rate of return on the incremental cash flow that equals or exceeds the MARR means the lower-initial investment alternative is the more attractive. True or False?

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Answers (1)

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Preston · Answer 1

False

Explanation:

The alternative with the higher initial investment is the most attractive when the incremental rate of return (ROR) exceeds the minimum acceptable rate of return (MARR), since the ROR analysis is performed on the incremental cash flows of the different alternatives.